Parents are shelling out more money for kids to attend college

Parents opened their wallets more generously in the 2014-2015 school year, a report shows, reclaiming their place as the primary source of college funding for the first time since 2010.

Parental income and savings now cover 32% of college costs, surpassing scholarships and grants as the largest share of college funding, according to the How American Pays for College 2015 survey, released by Sallie Mae. The percentage of college funding contributed by parents’ savings and income had hovered at and below 30% since it nosedived from 37% in 2010.

Parents are paying more for college in part because it’s costing more. The amount that families spent on college rose to an average of $24,164 this year — a 16% gain from $20,882 in 2014.

But the increased wallet-opening isn’t just linked to rising tuition. Parents are less worried about a volatile economy impacting their ability to pay for college. Only 17% of parents reported extreme concern that losing a job would impact their income, compared to 23% in 2014. In 2015, 62% of families eliminated potential colleges because of the cost, down from 68% in 2014 and the lowest percentage since 2009. The financial worries of parents — which were at record levels in 2010 as loan rates rose and the value of savings diminished — had eased significantly by 2015. Whereas a quarter of parents in 2010 recorded “extreme worry” about college costs because they were concerned about the value of their homes, only 6% said the same in 2015.

In addition to parental income and savings, 30% of college funding, on average, came from grants and scholarships in 2015, while 16% came from student borrowing, 11% from student income and savings, 6% from parental borrowing, and 5% from friends and family.

Despite the widespread coverage of student loan burdens, the majority of families did not take out loans to pay for college. When they did, the students were the ones who signed the dotted line three-quarters of the time. Families with students enrolled at private four-year colleges were far more likely to borrow (with 56% taking out loans) than those in four-year, or two-year public schools, where 43% and 22% of families took out loans, respectively.

Here’s why working at Chipotle just got way better

Chipotle Mexican Grill next month is planning to offer tuition reimbursement and paid vacation days to part-time employees, making the fast-casual chain the latest to tout expanded perks in a move to lure and retain top talent.

The benefits, reported by Nation’s Restaurant News and confirmed via e-mail by a Chipotle CMG spokesman, will start July 1 and also include sick pay. A Chipotle spokesman wasn’t immediately able to comment on if the restaurant chain’s full tuition reimbursements came with any stipulations. Those perks had previously only been given to salaried workers, but will now expand to all that the restaurant chain employs.

Why offer the costly perks? Well, according to one recruitment strategy manager quoted by Nation’s Restaurant News, the benefits will help Chipotle recruit high school and college students. Those students are “a lot” of the demographic the restaurant company courts for entry-level positions.

This is also part of a broader trend. Coffee giant Starbucks SBUX, car maker Chrysler and health insurance company Anthem also have put in place free tuition programs. Labor experts have noted that expanded perks, as well as higher wages for some minimum-wage jobs in the retail and restaurant space, have been a response to a tighter labor market. Those companies are thus fighting for the best talent, rather than counting on a large pool of applicants to cherry pick from.

Are we spending too much on college?

Going to college is a life-changing experience for most everyone, and unlike many of those experiences, the change is generally for the better. It isn’t free, though, and whether it beats other options for spending that money is a question worth considering.

That consideration begins with the fact that the U.S. spends about four times as much on college as the average of other developed countries. Because the government provides less support for college than in any other country, students and their families in the U.S. have to pay a bigger part of college costs. That adds up to seven times more than in other countries.

The U.S. also sends a very high percentage of high school grads on to college—70%, the majority of whom go to bachelor degree programs—but we have the second-worst graduation rate of any of our peer countries: Only 40% of full-time students graduate in four years and only 60% in six years.

As I mention in my upcoming book, Will College Pay Off?, there is no evidence at all that jobs today require more education than a generation ago. The upskilling of jobs in the economy over time is incredibly modest, and virtually none of it is in science, technology, engineering, and math (STEM) areas.

At the same time, we have been cranking out new college grads at a remarkable clip: up 30% just since 2001. Forty-one percent of individuals in the age group 18 to 24 were in college in 2012 as opposed to 24% in 1973.

Much has been made of the fact that college students earn more than those without college degrees—roughly 60% more. That figure rose because of the collapse of wages for high school grads associated with the decline of union and manufacturing jobs, not because of rising wages for college grads. It is also true that college grads have much lower unemployment rates than high school grads. But that is because college grads are taking the jobs that high school grads used to take.

One of the changes over the last few decades that has gotten less attention is the shift in the majors and degrees that college students pursue. Liberal arts have been in decline for decades. The most popular major by far is business, and the second is teacher training/education degrees. Beyond that change has been the explosion of new majors that sound more like job titles—health care administration, casino management, construction supervision, and so forth. About 12% of students in college now attend for-profit schools, and they are especially oriented to these practical degrees.

That change in majors reflects concerns from parents struggling to pay college bills about whether graduates will get jobs, and it plays into the complaints from employers that they aren’t getting the skilled candidates they want. The main factor driving those complaints has been that employers are no longer willing to hire inexperienced grads and train them. They now expect them to come ready to “hit the ground running” and start contributing.

What we don’t hear enough about, though, is that employers don’t seem to be as interested in the more practical college majors. What they want are experience and the hands-on skills that come from actually working rather than trying to learn job skills in a classroom.

There is one more trend that rounds out the picture, and it goes back to the limited opportunities for high school grads. We have essentially gutted vocational education where students could learn hands-on skills. Apprenticeship programs have also collapsed, declining by almost half in the past decade.

The problem we have in the economy now is a shortage of job skills caused by a shortfall of work-based learning opportunities and training. College classrooms are not the best way to learn hands-on skills. Yes, many college programs arrange internships as part of that education, but that is an extremely expensive way to pay for those skills—students are paying college tuition/course credits for unpaid work.

That takes us back to the original question: Are we spending too much on college? The answer depends in part on what else we could be doing with the money. For many middle class and especially wealthier families, college is an affordable investment in the long-term future of the student. It’s not just about getting a job. But for poorer families, and especially for students paying for their own education with loans, college is first and foremost about getting a job that pays enough to reimburse the costs of the education.

When that is the goal, a serious competitor for the dollars spent on college is job training. It can be provided much more cheaply and more effectively. Clearly it is not a substitute for all the good things that a college can do for students. But for the multitudes that go to college to get a job, it would be a much better use of the money.

The cost of an MBA in Europe has plummeted, thanks to a strong dollar

(Poets&Quants) — Add one more upside to the European MBA for U.S. students. Already, MBA programs in Europe offer an advantage to many students in their typical one-year length, cutting tuition along with opportunity costs. And the top European B-schools tend to accept higher percentages of applicants with lower GMAT scores than highly ranked U.S. schools.

Over the past year, the strength of the U.S. dollar versus the euro has drastically discounted the price of a European international MBA, and led, school officials say, to increased interest from American would-be MBAs. The euro has plunged from a high of around 1.4 dollars per euro in May 2014 to 1.1 now, making it 21% cheaper for students who use dollars to pay European MBA tuition.

INSEAD’s current tuition of 65,800 euros costs $71,557 in dollars – but if the euro hadn’t fallen since this time last year, that price would have been $89,488. Of course, the true savings are even greater when you add in the estimated living expenses of 23,800 euros that come with getting an MBA on INSEAD’s Fontainebleau campus in France. That’s $7,140 less expensive than only a year ago.

The price differential is less consequential for U.S. students who enroll at schools in Britain. That’s because the United Kingdom government never adopted the euro and kept its own currency, the pound sterling, which hasn’t suffered as significant a fall against the U.S. dollar in the past year. The price break is less than half in the U.K., at 9.8%. At London Business School, for example, tuition for a student starting in its two-year MBA program this August is 67,750 British pounds, or $103,895. A year ago, it would have cost about $10,000 more, or $113,892. And 10 years ago, the same tuition would have been $123,603.

Cambridge and Oxford, which both have 12-month-long MBA programs are less expensive. At the University of Cambridge’s Business School, the tuition of 44,960 British pounds comes to $68,841 versus $75,580 a year ago, while at Oxford University’s Said Business School, the price tag for an MBA is 47,925 pounds, or $73,381 now, compared to $80,565 just 12 months earlier.

But the biggest discounts occur elsewhere in Europe. At Vlerick Business School in Belgium, the currency differential has cut tuition to $39,960 for this year, from $51,060 in 2014. The cost of Catolica Lisbon’s MBA has fallen to $37,800 from 2014’s $48,300. In Germany, the European School of Management and Technology’s international MBA price has dropped to $31,320 from $40,020.

“What we are already seeing is … that more U.S. people will apply and will come to Europe,” says Filip Roodhooft, research dean and MBA program instructor at Vlerick.

Vlerick’s recent move to Brussels from Leuven likely played a major role in the more than doubling of U.S. applications to the school over the past year, but the dollar’s strength probably played a part, Roodhooft says. Applicants always mention that “this currency effect has an important impact,” Roodhooft says.

There were only three American students in Vlerick’s MBA class of 2014, out of 43 students from 21 countries. But in light of the strong dollar, Vlerick has ratcheted up its U.S. recruiting via aggressive online marketing, Roodhooft says.

While many American students who earn MBAs in Europe continue working there or elsewhere overseas afterward, considerable numbers return to the U.S. From INSEAD’s MBA class of 2013, for example, 36% of 73 U.S. students—about 7% of the class—returned to the U.S. for jobs after graduating, the same proportion as in 2010.

The number of American students at leading European schools varies widely. At the Rotterdam School of Management, there were 10 Americans out of 140 students in the MBA class of 2014.

Students from North America made up 18% of IE’s MBA class of 2014. According to the school’s careers report, 35% of those in the class who obtained jobs went to work in Europe, 28% in Latin America, 12% in Asia, and 12% in North America.

The career paths of HEC Paris’ MBA graduates offer a window into the European job market. Ninety per cent of 2014 MBAs were employed within three months after graduation. Half stayed in Europe. More than half went into industry, with tech companies taking 20% of the employed members of the class. Only 15% went into finance, a drop from the typical 20%, due to the weakness of that sector in Europe. The school’s careers report cites more interest from American firms. “As the U.S. economy continues to improve, we see more and more U.S.-based companies looking to increase recruiting in Europe and beyond,” the report says.

INSEAD administrators have yet to see a rise in applications from U.S. students – but interest is clearly perking up, as indicated by the numbers of Americans attending marketing events in the U.S., says Virginie Fougea, associate admissions director for degree programs. “We’ve seen great attendance … a noticeable change in attendance,” Fougea says.

Fougea notes that for would-be MBAs, it typically takes two years between considering the degree and applying to schools. INSEAD administrators expect they will “most likely” receive increased applications from U.S. students if the currency differential remains or widens, as applicants commit to applying for an MBA.

To be sure, a falling euro alone is not going to make U.S. residents fall all over themselves to get an MBA in Europe. “The Eurozone is also facing some larger scale macro level labor force issues which can make it a difficult environment for international job seekers, MBA or not,” says Bhavik Trivedi, managing partner of Critical Square admissions consulting. “So there’s more to consider than just the length and the money—in-nation trends are pretty important, too.”

In any case, American MBAs who choose to stay in Europe will likely be paid in euros, a potential problem for people considering a return to the U.S. Most top European programs have been reporting fairly stagnant starting salary growth over the past three years. INSEAD graduates, from 2009 to 2013, found starting salary figures up slightly in Germany and France but down steeply in Switzerland. For 2013 grads, the median salary in Germany was 96,000 euros, or about $128,000 at the time. However, that salary, if paid in euros today, would be worth only $104,000. A 2013 INSEAD grad staying in France to work for the median salary of 82,800 euros would have been making $110,000 initially, but, minus any raises, about $90,000 now.

Critical Square doesn’t advise clients on the currency issue unless they ask, Trivedi says. “We strongly believe where they want to be, where they want to work, and what they want out of the experience are a higher level concern. But if folks are interested in a European MBA, then the currency drop definitely doesn’t hurt.”

Getting an MBA in Europe makes de facto sense for U.S. residents who want to work in Europe. But a European MBA can propel graduates to other international destinations, points out Jon Frank, CEO of Admissionado admissions consultants. “European schools tend to be more global than U.S. schools, even beyond their obvious strength in Europe,” Frank says. “[People] interested in Singapore, Lagos, Dubai, Hong Kong, etc. could gain a great deal by targeting European schools.”

At the same time, graduation from elite U.S. MBA programs also opens up opportunities all over the world for people who want to work internationally, Frank notes. “This is why we stand behind our simple advice, to go to the best school you can get into,” Frank says.

While top European MBA programs such as INSEAD and HEC Paris are well regarded and have fairly strong alumni networks in the U.S., graduates from U.S. programs have, in general, an edge in the job market over those from European programs, Frank says. “Firms that come recruiting at MBA programs can have a somewhat local bias. This becomes increasingly true as you exit the most elite programs, and enter second-tier and third-tier programs. Local alumni networks are quite powerful.”

And Frank believes that with the bedrock price difference between one-year European MBA degrees and two-year U.S. degrees, currency fluctuations have a relatively limited impact.

Starbucks expands college tuition benefit for workers

(Reuters) – Starbucks is expanding its employee college tuition assistance program to cover the entire cost of getting an online bachelor’s degree, the chief executive of the coffee chain said on Monday.

The Seattle-based company, known for offering benefits such as healthcare and stock options, launched the “Starbucks College Achievement Plan” with Arizona State University in June 2014. It previously limited the program to juniors and seniors seeking to complete their degrees.

The enhanced tuition reimbursement program from Starbucks comes at a time when an improving U.S. labor market is forcing major restaurant chains and retailers, including McDonald’s and Wal-Mart Stores, to raise hourly wages and improve benefits to compete for the best workers.

Chief Executive Howard Schultz said Starbucks expects to spend $250 million or more over a decade on tuition reimbursement, a perk he said Starbucks employees had requested.

“The unfortunate reality is that too many Americans can no longer afford a college degree, particularly disadvantaged young people, and others are saddled with burdensome education debt,” said Schultz, who added that Starbucks hopes to help 25,000 employees earn their degrees by 2025.

Starbucks employees working 20 hours per week or more, which account for roughly 80 percent of the company’s U.S. workforce of more than 140,000, are eligible. Nearly 2,000 Starbucks employees, known as partners, already have enrolled in the program.

The students, who need not complete a degree or stay with the company after earning a diploma, will be reimbursed for the cost of their classes at the end of every semester, Starbucks said.

Starbucks, which recently raised worker pay but did not disclose the size of the increases, said it expects to have “several hundred” graduates by the end of 2016.

Schultz told Reuters that he would be open to expanding the program to include master’s degrees in the future.

In addressing the nation, President Obama said he would send Congress a “bold new plan to lower the cost of community—to zero.” He noted that 40% of college student choose community college. “Some are young and starting out. Some are older and looking for a better job. Some are veterans and single parents trying to transition back into the job market,” he said. “Whoever you are, this plan is your chance to graduate ready for the new economy, without a load of debt.

The President’s plan, first announced on January 8, would make two years of community college free for students of any age who earn a C+ average, attend school at least half-time, and are making “steady progress” toward their degree. The program would be available at community colleges with academic programs whose credits transfer to local public four-year college and universities.

President Obama’s proposal comes after a period in which state governments—during and after the Great Recession—decreased their total direct support of public higher education institutions. In an October 2014 study, the Center for American Progress reported that between fiscal years 2008 and 2012, state funding across the entire higher education system declined from 29.1% of total revenue to 22.3%.

A report from The College Board shows a steady decline in state support of higher education as measured by funding per $1,000 in individual residents’ personal income.

The Center for American Progress says the dip in education spending has been the “primary driver” of the increasing net price of college. “Decreases in state funding have led to increases in tuition, with families carrying the cost,” the Center wrote in its report.

Likewise, The College Board reports that the inflation-adjusted sticker price of tuition and fees at public two-year community colleges is 2.5 times as much as it was 30 years ago.

It should be noted that since 2008-2009 students who attend public two-year colleges have received enough grant aid and tax benefits to cover published tuition and fees, plus a portion of other expenses.

When grants and aid are accounted for, community college is relatively affordable already. That’s one of the major criticisms of Obama’s proposal. And while the plan will cover tuition for two years, it won’t make a dent in community college students’ other expenses, like the nearly $8,000 they must fork over for housing and the $1,700 they pay for transportation.

Still, the realignment of revenue from state funding to tuition is still crushing low- and middle-income students. In states with the greatest college funding reductions, students are paying the most at two-year and four-year institutions.

The Center’s study concludes that, in the last decade, states’ disinvestment from public education and its subsequent fallout have contributed to a dip in public college attendance among students from low- and middle-class households.

President Obama’s free community college plan aims to address that dip in attendance. If enacted, it will reignite state spending on higher education—federal funds will pay for three-quarters of the average cost of community college but states must cover the rest—with the ultimate goal of making sure that “community college is accessible for everybody.”

Why college isn’t for everyone, explained in a single chart

If you listen to the experts, they’ll tell you that, despite the rising cost of a degree, college still pays off.

And the statistics bear this argument out. A college graduate will on average make $1 million more than a worker with just a high school degree over the course of his lifetime, making even a six-figure upfront investment well worth it in the end. Yet anecdotalevidenceabounds of students who either flunked out of college or graduated with large debt loads and are still unable to land jobs that will make the investment in a degree pay off.

The bottom quarter of earners with a college degree don’t make more money than the average high school graduate. And this hasn’t really changed much in 40 years. In fact, this graphic shows that a college degree has become more valuable even for the bottom quarter of earners, likely as a result of the evaporation of high-paying blue collar jobs, like those in the manufacturing industries. Of course, over the past 40 years, the cost of a degree has increased 12-fold, while a degree holder isn’t making more money at all, when accounting for inflation.

So, it’s quite likely that, given the huge upfront investment for a college degree, many more workers today would have been better off not going to college at all. There are a few caveats that should be mentioned, however. First, we don’t know for sure how much money this bottom quarter of degree-holding earners would have made without their college education. Furthermore, much of this could boil down to career choice: there are many jobs that require a degree but don’t pay very well. If someone earns a degree for reasons beyond making more money, it could be that the upfront investment is worthwhile regardless.

That being said, the above graph is certainly evidence that both the public and private sector need to make serious changes to provide higher education more efficiently. Unfortunately, this bit of information isn’t really helpful for the millions of Americans who need to decide how and where to send their kids to college.

There is a well-established principle in behavioral economics that people systematically overestimate their abilities in general, and we can see this in the exponential increase in college costs. Up to 25% of college grads would probably be better off not pursuing a degree, yet nobody actually thinks they’re going to be the ones for whom the investment doesn’t pay off.

Further compounding the problem is the fact that students usually don’t have a great idea of how they are going to fare in college, or what sort of degree or career they will pursue until after they’ve already made the decision to attend.

One could argue that all this uncertainty is evidence that we should be investing more in public support of higher education. There’s plenty of evidence that there are what economists call “spillover effects” from students educating themselves, that society as a whole benefits from higher education. So there is justification for paying for higher education with tax dollars. And since students don’t know ahead of time what degree they will personally benefit from, it’s possible that students will just begin to forego college altogether, hurting society in general. There’s evidence that this is beginning to happen.

In the meantime, students who are unsure of what they want to study or do are probably best advised to be very cost-conscious when choosing a college, and to be unafraid to wait until they are sure how they will use their degree before they start to pursue one.

But the most affordable title goes to Berea College, where students will spend a net total of $49,280 to get their degree and walk away with an average debt load of $2,290. Meanwhile, if you want to target a school with the highest median pay five years out, look to Harvey Mudd College. Students net an average of $73,300 annually five years after leaving campus.

As the debate around rising student loan debt rages, future college students are likely wondering if the cost of going to college is worth the payoff.

Student debt has topped $1 trillion nationwide. Over 70% of college graduates last year had student loan debt at an average of $29,400 per borrower, according to the Project on Student Debt. From 2008 to 2012, the rate of debt accumulation has been increasing an average of 6% every year.

Yet even as student debt grows, the pay gap between college graduates and everyone else reached a record high last year, according to the Economic Policy Institute. Those with a four-year college degree made, on average, 98% more an hour in 2013 than people without a degree.

College is clearly the way to higher lifetime pay, even with the added debt. So the next question is: how do students choose the school that will best maximize their earnings-to-cost ratio?

On the whole, technology and math focused schools, including Harvey Mudd, offer students a ramp to high pay without unbearable costs. The Massachusetts Institute of Technology and the California Institute of Technology offer the second and third highest average income five years out, both topping $68,000.

Students who may not have top-level scores can still target schools that will cost less than $100,000. Montana Tech at the University of Montana, where students pay $88,250 for their degrees, accepts 89% of applicants. University of Arizona, with a total cost of $98,560, accepts 71%.

Those looking for a school that will provide an invaluable skill set to kickstart their American dream should peruse Money’s list of colleges that add the most value. While it’s not surprising that CalTech and Princeton University send out grads that make the big bucks (those schools tend to attract the top-of-the-top to begin with), these schools transform often struggling students into earnings powerhouses.

At the University of California-Irvine, the No.2 school on the list, nearly 40% of the student body comes from low-income families. It graduates 86% of freshmen, a 15-percentage-point lead over schools with similar student populations. Those students go on to earn an average of $49,000 five years out, about $9,000 more than graduates of similar schools.